The two largest US proxy advisory firms have issued guidance on their newest proxy voting policies. ISS issued both its
2021 policy document (which did not contain material changes to US compensation policies) and a specific
COVID-19 guidance document in October 2020.
Glass Lewis’s 2021 policy document does not specifically highlight the pandemic, but policies note the possibility of “extraordinary circumstances.” Here are the highlights:
ISS. ISS’s most recent policy release covers
frequently asked questions. For 2021, the only compensation change highlighted is that threshold between “medium” and “high” concern for CEO compensation as a multiple of the ISS peer group median has been lowered from 3.33x to 3.00x. For equity plans, the threshold passing score on the ISS scorecard increased, making it slightly more difficult to pass.
- For S&P 500 companies, it rose from 55 to 57
- For Russell 3000, it rose from 53 to 55
Glass Lewis. 2021 policy changes:
Short-Term Incentive Plans
- Must have clearly disclosed justifications for any significant changes to a company’s plan structure, including performance goals lowered from the previous year.
- Retroactively pro-rating performance periods will be viewed as applying upward discretion.
- Plan changes will be viewed in the context of other actions taken by companies (such as employee layoffs or furloughs and pay reductions) as part of their efforts to control costs.
Long-Term Incentive Plans
- As with ISS, Glass Lewis views changes to equity awards in a negative light.
- Policies continue to favor multi-year performance awards using two or more metrics that “are not easily manipulated by management.”
- Reducing or eliminating performance awards will be viewed negatively and could drive adverse recommendations.
- One-time awards are viewed with skepticism but may be appropriate in extraordinary circumstances.
- Clear rationale for why current awards are no longer appropriate
- Limited benefit
- Performance-based
Since the onset of the COVID-19 pandemic, both Glass Lewis and ISS have expressed strong skepticism about the need to adjust compensation. However, voting recommendations for early filers that disclosed changes or exercised “informed judgement” (in our view, a better term than “discretion”) have largely been accepting of compensation committee actions to address the impacts. Where
adverse vote recommendations have been issued, they have been tied to other concerns rather than responses to the pandemic. The Center believes that ISS would not like to see a significant increase in the proportion of companies receiving adverse vote recommendations.
